The Recession: What Top CEOs Are Thinking

Seven corporate bosses and a veteran GE executive paint a dire picture of what lies ahead
(From left to right): Fred Smith, Miles White, Lewis Hay, Ralph de la Torre, Robert Nardelli, Fred Hassan, Dennis Dammerman Mark Humphrey/AP Photo; Stephen J. Carrera/Abbott; Daniel Acker/Bloomberg News; Jason Grow; Justin Lane/EPA/Corbis; Brendan McDermid/Reuters; GE/Via Bloomberg News

The CEOs of some of the nation's largest corporations didn't need the National Bureau of Economic Research's Dec. 1 pronouncement to realize the country has been in a severe downturn for months. That was clear on Nov. 14, when more than a dozen top executives sat down to discuss the economy at BusinessWeek's CEO Summit in Palm Beach, Fla., hosted by John K. Castle, chairman and CEO of private equity firm Castle Harlan. Moderated by Editor-in-Chief John A. Byrne, the roundtable exchange included FedEx (FDX) Chief Fred Smith, Chrysler CEO Robert Nardelli, and former GE (GE) Vice-Chairman Dennis Dammerman, a recent appointee to AIG's (AIG) board. Excerpts follow.


So how bad is the economy now?

FRED SMITH, FedEx It is by far the worst I've seen in the 35 years I've been in business. It's just gone right off the cliff. For retailers, I don't think there's going to be any Christmas to speak of. Some of our high-end retailers reported sales down 25%. Wal-Mart's (WMT) doing well, but they're about the only one. Traffic across the Pacific has been down for some time. Suppliers' provisioning for Christmas starts in June and July on the water. The only good thing is that if anything turns this around, it'll be pretty quick, since inventories are at such incredibly low levels. But I'd be very surprised if anything started to turn around before the middle of next year. There's just no juice out there.

How would you judge the government's handling of the crisis?

ROBERT NARDELLI, Chrysler There's a lot of second-guessing on what [Treasury Secretary] Hank [Paulson] is doing. We could certainly ask if Lehman really had to go down. It's a tragedy to have let that company go. Saving it would have provided a little more confidence in the system. Its loss seemed to add to the anxiety on Wall Street—and moved it to Main Street. I think it contributed to our 6.5% unemployment rate, which could go to 10%-plus. As for consumer confidence, there's an unprecedented drop, certainly in our industry. Even with aggressive resizing, we can't keep up with it because we haven't seen the bottom. I think we're going to face historic challenges of epic proportion. I hope we're able to hold it at a recession.

RALPH DE LA TORRE, Caritas Christi Health Care Health care has been holding its breath. We live and die on the tax-free bond market, and right now we're dying. Projects are being postponed. All the commodities that health care buys and the companies and people it touches—from imaging to pharma to physicians—are about to dive off the cliff. The bond markets are closed tight. Until they reopen, we're going to have a big problem. I think there's going to be a pretty substantial consolidation in health care. As many as 20% of hospitals could close. There's going to be no capital spending for at least the next year or two.

MILES WHITE, Abbott Laboratories (ABT) [For pharma], it depends. If you're on a drug that's reasonably discretionary, you might cut back as a patient. But if you're on a drug for a chronic problem, you're not cutting back. If you're a cancer patient, you're not cutting back. If you're a rheumatoid arthritis patient, you're not cutting back. I wouldn't call [our situation] severe.

What about the utility business?

LEWIS HAY, FPL Group (FPL) A lot of people think demand for electricity is inelastic. It's not.

Our customers are cutting back, and they're not paying their bills, either. Probably 25% of our customers are past due. Normally, it's more like 15%. Another issue is access to capital. We had plans to invest more than $7 billion this year, and we've already cut back to about $5 billion. With such a shortage of access to capital, how are we going to get all these alternative energy projects going?

What will it take to get the economy going again?

DENNIS DAMMERMAN, former GE vice-chairman We've got to get consumers and business spending again. I think we've proved over the years that investment tax credits and faster depreciation increase equipment spending. For consumers, confidence is key. And while I don't agree with much of what Barack Obama wants to do, I think that for a great chunk of our consuming public, he has improved that confidence. I hope this enthusiasm doesn't die.

How long or severe do you think the recession will be?


Even if we start growing again, it's not going to be a full-employment kind of growth. We'll still see the misery index climb. It'll take at least until 2010 to flush it out of the system.

TIMOTHY MANGANELLO, BorgWarner (BWA) We're preparing for nothing good until mid-2010. If things get uglier, it's possible it won't improve by then. For us, a global player, the cost structure in the U.S. has to improve. Health-care costs are too high. Tort reform is too difficult. And business taxes are too high.

FRED HASSAN, Schering-Plough (SGP) The key is inflation. If inflation stays under control and confidence returns, we'll come back early. If inflation starts to roar in mid-2009 and thereafter, we have a problem. It might start to look like the mid-1970s.

Business Exchange related topics:Recession Business PlanningU.S. Financial CrisisRecession Spending and Investing

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